Jazz Hit with Rs. 22 Billion Fine in Historic Court Ruling, IHC sides with FBR

A significant ruling by the Islamabad High Court, led by Justice Babar Sattar, has sided with the Federal Board of Revenue (FBR) in a tax reference case involving a prominent Telecom operator (Jazz). Jazz is ordered to pay approximately Rs. 22 billion (USD 78 million) in taxes on its transaction gain.

The case originated from a 2018 internal asset reorganization where Jazz transferred its nationwide tower infrastructure to its wholly-owned subsidiary. The disposal of these assets, valued at Rs. 98.5 billion (USD 940 million), resulted in an accounting gain of roughly Rs. 75.9 billion in Jazz’s financial statements.

The Telecom Operator had argued that this transaction should be tax-exempt under Section 97(1) of the Income Tax Ordinance, 2001 (ITO), which deals with intra-group transfers. This section typically allows for a tax-neutral event if certain conditions are met. The primary condition is that the written-down value of the transferred asset remains unchanged in the hands of the transferee, thus preventing any immediate generation of taxable economic value.

However, the High Court dismissed this argument. The Court found that the transaction was conducted at a fair market value of USD 940 million, a value accepted by the petitioner as consideration. This acceptance, the Court concluded, violated the conditions of Section 97 of the ITO, as it clearly generated economic value and a taxable gain. Consequently, the Court ruled that the gain from the transaction constituted a taxable event, with no grounds to defer taxation.

Furthermore, the Court affirmed the Commissioner’s authority to consider accounting income when determining taxable income. This judicial victory for the FBR aligns with the Hon’ble Prime Minister’s vision for the swift resolution of state revenue cases pending in various appellate forums. Under the leadership of Mr. Rashid Mehmood, Chairman, FBR, and Mir Badshah Khan Wazir, Member (Legal IR), the FBR’s Legal Wing has intensified efforts to actively pursue pending cases, providing crucial assistance to the courts. These concerted efforts have led to the resolution of numerous tax disputes, recovering billions of rupees in revenue.

Ms. Asma Hamid, ASC, and Dr. Ishtiaq Ahmed Khan (DG Law) commendably represented the FBR in this particular case. In a separate but related development, the Court also dismissed another petition filed by the same telecom operator against a show-cause notice issued under the Federal Excise Act, 2005. The Court imposed a cost of Rs. 100,000 on the petitioner, to be paid to the Deputy Commissioner-IR, LTO, Islamabad, within four weeks.

Techjuice reached out to Jazz for an official comment, but they chose not to provide any regarding the decision.